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Friday, 20 November 2015

Key Challenges Faced by CPO’s

Managing a budget is often a
challenging task. For CPOs, they need to have a strong team across the
end-to-end sourcing and procurement process to ensure costs are contained.
Without a dedicated team to run a quality sourcing event, requirements are
often not accurately captured or scrutinized and money is wasted on
unnecessarily high-specification products and services. Without a dedicated
team at the other end of the source-to-manage process, to manage supplier adherence
to contract, scope creep becomes an issue. Finally, without the people, process
or technology to measure and track current spend, there is an ‘overspend lag’,
meaning that by the time anyone notices spend is going over-budget, it is too
late.

Visibility of Realized SavingsA common complaint among CPOs is that savings that have been
negotiated or forecast mean nothing to their Chief Financial Officer (CFO).
They care about savings that have been realized and assert that pressure on the
CPO. Not only do they want savings to be realized, they want them to be
measured and tracked to the P&L, aligning sourcing successes to business
outcomes such as earnings per share, working capital and operating
profit.

In the same way a marketing
professional measures how many hits their website gets after their latest
commercial aired so they can validate its success, a CPO needs to know how much
has been purchased off their new contract so their success can be measured.
Only when real savings can be measured and audited can the sourcing and
procurement function truly become a fundamental part of the finance team’s
annual budget planning process.

Compliance to Contracts An all-too-often overlooked responsibility of the sourcing
and procurement function is to ensure compliance to contracts. CPOs know the
importance, but ensuring that this message is delivered to the rest of the
business, never mind that it is acted upon, is never easy. A most frustrating
discovery for a sourcing professional is that the contract they sourced and
implemented is being ignored in favor of another supplier that is delivering
less value than the chosen supplier. As well as the direct forfeiture of
savings, CPOs know they are also losing potential volume-based incentives from
the preferred supplier and diluting their buying power in the market.

Effective Use of Sourcing Next CPO challenge is simply that they want their
sourcing and procurement function to be used more and recognized as a
value-generating shared resource by the enterprise. There is nothing more
frustrating than having a well-oiled process, a team with deep sourcing
expertise and world-class technology, only to find rogue sourcing. Almost the
same is to be involved only at the last minute to negotiate the final contract
once a supplier has been all-but selected. A CPO needs the authority and
support from other executives to mandate the use of the sourcing and
procurement function by the entire enterprise. In the same way that the Google
algorithm evolves and improves every time you enter a new search, a sourcing
operation will actually improve with higher utilization as greater spend
volume, more market information, better collaboration and increased benchmark
data take effect.

Delivering Market IntelligenceMarket knowledge, awareness of industry trends and ability
to benchmark suppliers are all key to running a successful sourcing
organization. But when an organization only has one contract in any given area
of spend and when they will only source that contract once every two or three
years (if that), how can they be expected to be an “expert” in that commodity?
The answer is that they can’t and they aren’t. We constantly see the topic of
market intelligence emerging in discussions with CPOs because, when they want
to run a sourcing initiative, they have to effectively start from scratch and
learn the business drivers in that market, who the suppliers are, what the
offerings are or the consumption models and, most importantly, how much should
they expect to pay.